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Location:

Lansing, MI

Posted:

August 02, 2016

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FICO® Score Open Access Consumer Credit Education – US Version

about FICO® Scores

Frequently Asked Questions about FICO® Scores

About FICO® Scores 1 What is a credit score? 1 What are FICO® Scores? 1 What is a good FICO® Score? 1 What is the lowest and highest possible FICO® Score? 2 Are FICO® Scores the only risk scores? 2 Why are my scores at each of the three consumer reporting agencies different?

2 Why is this FICO® Score different than other scores I’ve seen .3 Why do FICO® Scores fluctuate/change 3 What are the minimum requirements to produce a FICO® Score? 3 What are Key Score Factors? 3 Who or what is FICO? 3 Access to Credit 4 Does a FICO® Score alone determine whether I get credit? 4 How is a credit history established? 4 How can I responsibly manage my financial health? 4 How long will negative information remain on my credit files? 6 Do FICO® Scores change that much over time? 6 What if I’m turned down for credit? 7 How do I get my free credit report 7 Can I transfer my credit file from another country to the US consumer reporting agencies? 7 Why did my lender lower my credit limit? 7 Credit Card Impacts to Scores 8 Should I take advantage of promotional credit card offers? 8 Will closing my credit card account impact my FICO® Scores? 8 What’s the best way to manage my growing credit card debt? 9 Mortgage Impacts to Scores 10 Are the alternatives to foreclosure any better as far as FICO® Scores are concerned? 10 Frequently Asked Questions about FICO® Scores

© 2013-2015 Fair Isaac Corporation. All rights reserved. ii How does a mortgage modification affect the borrower’s FICO® Scores? 10 Will contacting a mortgage servicer affect a FICO® Score? 10 How does refinancing affect a FICO® Score? 10 How do loan modifications affect a FICO® Score? 11 How long will a foreclosure affect a FICO® Score? 11 Student Loan Impacts to Scores 12 How do FICO® Scores consider student loan shopping? 12 How can the impact of student loan shopping be minimized? 12 Bankruptcy and Public Record Impacts to Score 13 What are the different categories of late payments and do they affect FICO® Scores? 13 How will FICO® Scores consider a bankruptcy, and how can I minimize any negative effects? 13 What are the different types of bankruptcy and how is each considered by FICO® Scores? 14 How do public records and judgments affect FICO® Scores? 14 Credit missteps – how their effects on FICO® Scores vary 14 General Impacts to Score 17 What are inquiries and how do they affect FICO® Scores? 17 Does applying for many new credit accounts hurt a FICO® Score more than applying for just a single new account? 18 Is there a best way to go about applying for new credit to minimize the effect to a FICO® Score? 18 Are FICO® Scores unfair to minorities? 19 How are FICO® Scores calculated for married couples? 19 Will spending less and saving more impact a FICO® Score? 19 If lenders have different lending requirements, how can I know if I qualify for affordable financing 19 Can accounts that aren’t in my credit files affect a FICO® Score? 20 Frequently Asked Questions about FICO® Scores

What is

a credit

score?

A credit score is a number that summarizes your credit risk. The score is based on a snapshot of your credit file(s) at one of the three major consumer reporting agencies (CRAs) Equifax, Experian and TransUnion at a particular point in time, and helps lenders evaluate your credit risk. Your credit score influences the credit that’s available to you and the terms, such as interest rate, that lenders offer you.

What

are

FICO®

Scores?

The credit scores most widely used in lending decisions are FICO® Scores, the credit scores created by Fair Isaac Corporation (FICO). Lenders can request FICO® Scores from all three major consumer reporting agencies (CRAs). Lenders use FICO® Scores to help them make billions of credit decisions every year. FICO develops FICO® Score based solely on information in consumer credit files maintained at the CRAs. Understanding your FICO® Scores can help you better understand your credit risk and allow you to more responsibly manage your financial health. A good FICO® Score means better financial options for you. What is

a good

FICO®

Score?

The score above which a lender would accept a new application for credit, but below which the credit application would be denied, is known as the “score cutoff”. Since the score cutoff varies by lender, it’s hard to say what a good FICO® Score is outside the context of a particular lending decision. For example, one auto lender may offer lower interest rates to people with FICO® Scores above, say, 680; another lender may use 720, and so on. Your lender may be able to give you guidance on their criteria for a given credit product. The chart below provides a breakdown of ranges for FICO® Scores found across the U.S. consumer population. It provides general guidance on what a particular FICO® Score represents. Again, each lender has its own credit risk standards.

Ranges of

FICO® Scores

What FICO® Scores in this range mean

800 or Higher • These FICO® Scores are in the top 20% of U.S. consumers

• Demonstrate to lenders that the consumer is an exceptional borrower

740 to 799 • These FICO® Scores are in the top 40% of U.S. consumers

• Demonstrate to lenders that the consumer is a very dependable borrower

670 to 739 • These FICO® Scores are near the average for U.S. consumers

• Considered by most lenders to be good scores

580 to 669 • These FICO® Scores are in the lowest 40% of U.S. consumers

• Some lenders will approve credit applications within this score range

Lower than 580 • These FICO® Scores are in the lowest 20% of U.S. consumers

• Demonstrate to lenders that the consumer is a very risky borrower

Frequently Asked Questions about FICO® Scores

the lowest

and

highest

possible

FICO®

Score?

The classic FICO® Scores which are in use today by the vast majority of lenders fall within the 300-850 score range. This score range was introduced to establish an easy-to-understand, common frame of reference for lenders and consumers. Industry-specific FICO® Scores, such as those for auto lending or credit card lending, were developed to accommodate the unique characteristics of their respective industry and range from 250-900. Some lenders also use FICO® Scores NG, which range from 150-950.

Are FICO®

Scores the

only risk

scores?

No. While FICO® Scores are the most commonly used credit risk scores by lenders in the US, lenders may use other scores to evaluate your credit risk. These include:

• FICO Application risk scores. Many lenders use scoring systems that include a FICO® Score but also consider information from your credit application.

• FICO Customer risk scores. A lender may use these scores to make credit decisions on its current customers. Also called “behavior scores,” these scores generally consider a FICO® Score along with information on how you have paid that lender in the past.

• Other credit scores. These scores may evaluate your credit file(s) differently than FICO® Scores, and in some cases a higher score may mean more risk, not less risk as with FICO® Scores. FICO® Scores are the scores most lenders use when making credit decisions.

Why are

my scores

at each of

the three

CRAs

different?

In general, when people talk about “your credit score,” they’re talking about your FICO® Scores. But in fact, your FICO® Scores are calculated separately by each of the three consumer reporting agencies (CRAs) using a formula that FICO has developed. It’s normal for your FICO® Scores from each CRA to be slightly different for any of the following reasons:

• Your FICO® Scores are based on the credit information in your credit file at a particular CRA at the time your score is calculated. The information in your credit files is supplied by lenders, collection agencies and court records. Some of these sources may provide your information to just one or two of the CRAs, not all three. Differences in the underlying credit data will often result in differences in your FICO® Scores.

You may have applied for credit under different names (for example, Robert Jones versus Bob Jones) or a maiden name, which may cause fragmented or incomplete files at the CRAs. In rare situations, this can result in your credit files not having certain account information, or including information that should be on someone else’s credit files. This is one reason why it is important for you to review your credit files at least annually.

• Lenders may report your credit information to one credit reporting agency today, and to another credit reporting agency tomorrow. This can result in one agency having more up-to-date information which in turn can cause differences in your FICO® Scores from both agencies.

• The CRAs may record the same information in slightly different ways which can affect your FICO® Scores.

Frequently Asked Questions about FICO® Scores

FICO®

Score

different

than other

scores I’ve

seen?

There are many different credit scores available to consumers and lenders. FICO® Scores are the credit scores used by most lenders, but different lenders (such as auto lenders and credit card lenders) may use different versions of FICO® Scores. In addition, your FICO® Score is based on credit file data from a particular consumer reporting agency, so differences in your credit files may create differences in your FICO® Scores. The FICO® Scores that are being made available to you through this program are the specific scores that we use to manage your account. When reviewing a score, take note of the date, bureau credit file source, score type, and range for that particular score.

Why do

FICO®

Scores

fluctuate/

change?

There are many reasons why your score may change. FICO® Scores are calculated each time they are requested, taking into consideration the information that is in your credit file from a particular consumer reporting agency at that time. So, as the information in your credit file at that bureau changes, your FICO® Scores can also change. Review your key score factors, which explain what factors from your credit report most affected a score. Comparing key score factors from the two different time periods can help identify causes for changes in FICO® Scores. Keep in mind that certain events such as late payments or bankruptcy can lower your FICO® Scores quickly.

What are

the

minimum

require-

ments to

produce a

FICO®

Score?

There’s really not much to it; in order for a FICO® Score to be calculated, a credit file must contain these minimum requirements:

• At least one account that has been open for six months or more

• At least one undisputed account that has been reported to the credit reporting agency within the past six months

• No indication of deceased on the credit file (Please note: if you share an account with another person and the other account holder is reported deceased, it is important to check your credit file to make sure you are not impacted). Minimum scoring criteria may be satisfied by a single trade line, provided the trade line does not contain disputed information or any indication on the credit file that the subject is deceased. This means that if you dispute all of your trade lines, a FICO® Score will not be able to be calculated.

Note: These minimum requirements vary slightly for FICO® Scores NG. What are

Key Score

Factors?

When a lender receives your FICO® Score, "key score factors" are also delivered, which are the top factors that affect the score. Addressing some or all of these key score factors can help you more responsibly manage your financial health over time. Having good FICO® Scores can put you in a better position to qualify for credit or better terms in the future. Who or

what is

FICO?

Founded in 1956, Fair Isaac Corporation (FICO) uses advanced math and analytics to help businesses make smarter decisions. One of FICO’s inventions is FICO® Scores, which are the most widely used credit scores in lending decisions. It is important to note that while FICO works with the consumer reporting agencies (CRAs) to provide your FICO® Scores, it does not have access to or store any of your personal data or determine the accuracy of the information in your credit file.

Frequently Asked Questions about FICO® Scores

Does a

FICO® Score

alone

determine

whether I

get credit?

No. Most lenders use a number of factors to make credit decisions, including a FICO® Score. Lenders may look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their review of this information, as well as their specific underwriting policies, lenders may extend credit to you even with a low FICO® Score, or decline your request for credit even with a high FICO® Score.

How is a

credit

history

established?

There are a few ways to establish a credit history, including the following.

• By applying for and open a new credit card, a person with no or little credit history may not get very good terms on this credit card such as a high annual percentage rate (APR). However, by charging small amounts and paying off the balance each month, you won’t be paying interest each month so the high APR won’t hurt your financial position.

• Open a secured credit card. Those unable to get approved for a traditional credit card may be able to open a secured credit card to build credit history, provided the card issuer reports secured cards to the consumer reporting agency. This type of card requires a deposit of money with the credit card company. Charges can then be made on the secured card, typically up to the amount deposited. With both traditional and secured credit cards, keeping balances low, paying off balances each month, and not missing payments are important for responsible financial health management.

How can I

responsibly

manage my

financial

health?

Responsible financial health management takes place over time. Your FICO® Scores reflect credit payment patterns over time with more of an emphasis on recently reported information than older information. Below is some general information about responsibly managing financial health:

• The key score factors provided with your FICO® Score represent the main areas of credit practices that you can address to responsibly manage your financial health.

• Consumers with a moderate number of credit accounts on their credit report generally represent lower risk than consumers with either a large number or a very limited number of credit accounts. Opening accounts solely for a better credit picture probably won’t impact a FICO® Score and, in some instances, may even lower the score.

• People who continually pay their bills on time tend to appear less risky to lenders. Collections and delinquent payments, even if only a few days late, can have a major negative impact on your FICO® Scores.

• People who stay caught up on amounts due and continue to pay their bills on time are generally viewed as less risky to lenders. The longer you pay your bills on time after being late, the better your financial health. Older credit problems have less impact on your FICO® Score than recent ones, so poor credit performance won’t haunt you forever. The impact of past credit problems on your FICO® Scores fades as time passes and as recent good payment patterns show up on a credit file. And Frequently Asked Questions about FICO® Scores

© 2013-2015 Fair Isaac Corporation. All rights reserved. 5 your FICO® Scores weigh any credit problems against any positive information that indicates that you’re responsibly managing your financial health.

• Creditors and legitimate credit counselors may be able to provide direction to people who are having trouble responsibly managing their financial health. Seeking assistance from a credit counseling service will not hurt your FICO® Scores.

• High outstanding credit card debt can negatively impact your FICO® Scores.

• Paying down total revolving (credit card) debt, rather than moving it from one credit card to another, is a responsible financial health management practice.

• Most public records and collections stay on a person’s credit report for no more than seven years though bankruptcies may remain for up to 10 years. However, as these items age, their impact on a FICO® Score gradually decreases, and people can re-establish a good credit history with ongoing responsible financial health management.

• People who show moderate and conscientious use of revolving accounts, such as having low balances and paying them on time, generally demonstrate responsible financial behavior. Having credit cards and installment loans (and making timely payments) will positively impact financial health. People with no credit cards, for example, tend to be higher risk than people who have managed credit cards responsibly.

• Typically, the presence of “inquiries” the number of requests from a lender for your credit reports when you apply for loans on a credit report has only a small impact, carrying much less importance than late payments, the amount owed, and length of time a person has used credit. FICO® Scores consider recent inquiries less as time passes, provided no new inquiries are added. Too many “inquiries can negatively affect a FICO® Score. However, FICO® Scores treat multiple inquiries from auto, mortgage, or student loan lenders within a short period of time as a single inquiry because when purchasing a house or a car it is customary to shop for the best rate, resulting in more inquiries.

• Closing unused credit cards as a short-term strategy to increase a FICO® Score can actually have the opposite effect and lower a FICO® Score.

• For people who have been using credit for only a short time, opening a lot of new accounts too quickly can lower a FICO® Score.

Frequently Asked Questions about FICO® Scores

will

negative

information

remain on

my credit

files?

It depends on the type of negative information. Here’s the basic breakdown of how long different types of negative information will remain on your credit files:

• Late payments: 7 years

• Bankruptcies: 7 years for a completed Chapter 13, and 10 years for Chapters 7 and 11

• Foreclosures: 7 years

• Collections: Generally, about 7 years, depending on the age of the debt being collected

• Public Record: Generally 7 years, although unpaid tax liens can remain indefinitely Keep in Mind: For all of these negative items, the older they are the less impact they will have on your FICO® Scores. For example, a collection that is 5 years old will hurt much less than a collection that is 5 months old.

Do FICO®

Scores

change that

much over

time?

It’s important to note that your FICO® Scores are calculated each time they’re requested; either by you or a lender. And each time a FICO® Score is calculated, it’s taking into consideration the information that is in your credit file at a particular consumer reporting agency at that time. So, as the information in your credit file changes, your FICO® Scores can also change.

How much your FICO® Scores change from time to time is driven by a variety of factors such as:

• Your current credit profile how you have managed your financial health to date will affect how a particular action may impact your scores. For example, new information in your credit file, such as opening a new credit account, is more likely to have a larger impact for someone with a limited credit history as compared to someone with a very full credit history.

• The change being reported the “degree” of change being reported will have an impact. For example, if someone who usually pays bills on-time continues to do so

(a positive action) then there will likely be only a small impact on his or her FICO® Scores one month later. On the other hand, if this same person files for bankruptcy or misses a payment, then there will most likely be a substantial impact on their score one month later.

• How quickly information is updated there is sometimes a lag between when you perform an action (like paying off your credit card balance in full) and when it is reported by the creditor to the consumer reporting agencies. It’s only when the consumer reporting agency has the updated information that your action will have an effect on your FICO® Scores.

Keep in Mind: Small changes in financial health management can be important to obtain a certain FICO® Score level or to reach a certain lender’s FICO® Score “cutoff”

(the point above which a lender would accept a new application for credit, but below which, the credit application would be denied).

Frequently Asked Questions about FICO® Scores

turned

down for

credit?

If you have been turned down for credit, the Equal Credit Opportunity Act (ECOA) gives you the right to obtain the reasons why within 30 days. You are also entitled to a free copy of your credit reports within 60 days, which you can request from each of the consumer reporting agencies. If a FICO® Score was a primary part of the lender’s decision, the lender may use the key score factors or reason codes to explain why you didn’t qualify for the credit.

How do I

get my free

credit

report?

You can get one credit report from each of the three major consumer reporting agencies once every 12 months.

Can I

transfer my

credit files

from

another

country to

the US

consumer

reporting

agencies?

Credit files and credit histories do not transfer from country to country. There are legal, technical and contractual barriers that prevent a person from transferring their credit files or history to a different country. Unfortunately, this often means that a new immigrant to the US will need to establish a new credit history. Why did my

lender

lower my

credit

limit?

Some banks are lowering credit lines and closing credit card or revolving accounts that have had little or no recent activity. These actions can hurt your score if they result in higher credit utilization (proportion of balance to credit limit); therefore, preserving credit lines by keeping credit card accounts open and using them frequently while, at the same time, maintaining low balances can help a score from being negatively affected. Frequently Asked Questions about FICO® Scores

Should I

take

advantage

promotional

credit card

offers?

Generally, opening new accounts can indicate increased risk to lenders and can hurt your FICO® Scores. Every individual’s situation is unique, but in general consumers with a moderate number of revolving accounts on their credit reports generally represent lower risk than consumers with either a relatively large number or a very limited number of revolving accounts. However, please keep in mind that opening a new account, and to a lesser extent the resulting credit inquiry, may demonstrate higher risk in the short term. Will closing

a credit

card

account

impact a

FICO®

Score?

Yes, but not in the way you might expect. And, while closing an account may be a good strategy for responsible financial health management in some cases, it also may have a negative impact on your FICO® Scores.

FICO® Scores take into consideration something called a “credit utilization ratio”. This ratio or proportion basically looks at your total used credit in relation to your total available credit; the higher this ratio is, the more it can negatively affect your FICO® Scores. This is because, in general, people with higher credit utilization ratios are more likely to default on loans. So, by closing an old or unused card, you are essentially wiping away some of your available credit and thereby increasing your credit utilization ratio. It’s a bit tricky, so here’s an example:

Say you have three credit cards.

• Credit card 1 has a $500 balance and a $2,000 credit limit.

• Credit card 2 is an unused card with a zero balance and a $3,000 limit.

• Credit card 3 has a $1,500 balance and a $1,500 limit. In this scenario your credit utilization ratio looks like this: Total balances = $2,000 ($500 + $0 + $1,500)

Total available credit = $6,500 ($2,000 + $3,000 + $1,500) Credit utilization ratio = 30% (2,000 divided by 6,500) Now, if you decide to close credit card 2 because it’s an old card that you never use, your credit utilization ratio looks like this:

Total balances = $2,000 ($500 + $1,500)

Total available credit = $3,500 ($2,000 + $1,500)

Credit utilization ratio = 57% (2,000 divided by 3,500) You can see that your utilization ratio rose from 30% to 57% by closing the unused credit card.

Frequently Asked Questions about FICO® Scores

the best

way to

manage

growing

credit

card

debt?

There are a number of different things to consider when managing credit card debt. We’ll touch on a few of the key things of which to be aware. The advantage of having more than one credit card

People who only have one credit card available and are coming close to maxing out that card, might consider applying for another card in terms of how it affects their FICO® Scores. It has to do with what’s called credit utilization. Utilization measures how much of your credit you are using in relation to your total available credit. If you have one credit card with $500 charged to it and a credit limit of

$1,000, then your utilization is 50%. There’s no ideal utilization to shoot for, because as with most things, it depends on everything else on your file. But in terms of the risk of hurting FICO® Scores, people who keep their utilization on any one card below 50% will see less negative impact to their FICO® Scores. Research has shown that people who max out a single credit card are more likely to miss future payments, and therefore the FICO® Score considers people using more of their available credit as more risky than people who are using very little of their available credit.

Disadvantages of having a large number of credit cards Consumers with a moderate number of revolving accounts on their credit report generally represent lower risk than consumers with either a relatively large number or a very limited number of revolving accounts.

Don’t forget about APRs

In addition to the number of cards, their limits and the amount a person charges on them, people who are cognizant of a card’s annual percentage rate (APR) can more responsibly manage their financial health. APRs are not currently reported by credit card companies to the consumer reporting agencies (CRAs), and therefore they are not explicitly considered when computing your FICO® Score. However, consumers who know the APR of all cards held can add any necessary debt to the card with the lowest APR, or pay off more debt on cards with higher APRs to decrease money paid toward interest charged. Frequently Asked Questions about FICO® Scores

Are the

alternatives

to fore-

closure any

better as far

as FICO®

Scores are

concerned?

The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure, are all “not paid as agreed” accounts, and considered the same by FICO® Scores. This is not to say that these may not be better options in some situations; it’s just that they will be considered no better or worse than a foreclosure by FICO® Scores. Bankruptcies as an alternative to foreclosure may have a greater impact on a FICO® Score. While a foreclosure is a single account that you default on, declaring bankruptcy has the opportunity to affect multiple accounts and therefore has potential to have a greater negative impact on your FICO® Scores.

Indicators of a loan modification within a federal government plan do not currently have a negative impact on FICO® Scores, although factors such as delinquencies will have a negative impact on FICO® Scores.

How does a

mortgage

modification

affect the

borrower’s

FICO® Score?

FICO® Scores are calculated from the information in consumer credit files. Whether a loan modification affects the borrower’s FICO® Scores depends on whether and how the lender reports the event to the consumer reporting agencies, as well as on the person’s overall credit profile. If a lender indicates to a consumer reporting agency that the consumer has not made payments on a mortgage as originally agreed, that information in the consumer’s credit reports could cause the consumer’s FICO® Scores to decrease or it could have little to no impact on his or her FICO® Scores.

Will

contacting

my mortgage

servicer

affect a

FICO® Score?

Simply contacting your servicer with questions has no effect on your FICO® Scores. If your servicer needs to check your credit, they must get your permission first. A credit check could result in an inquiry in your credit file, which can have a small impact on your scores. Any action after that may also impact your FICO® Scores for example, if you pursue refinancing or loan modifications.

How does

refinancing

affect a

FICO®

Score?

Refinancing and loan modifications can affect your FICO® Scores in a few areas. How much these affect the score depends on

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